August exports shrink 12.6%, trade deficit hits 4-month high of $6.77 bn

Earlier, the government had been hoping to reach a single-digit contraction by August, with a tentative growth forecast for September
After reducing for three months, the pace of contraction of India’s exports rose in August. Export earnings in the month declined by 12.6 per cent year on year, higher than July's 10.2 per cent fall, as trade in major foreign exchange earners such as petroleum, gems, electronics, and textiles continued to take a hit. Outbound trade stood at $22.7 billion, completing six straight months of contraction. 

Earlier, the government had been hoping to reach a single-digit contraction by August, with a tentative growth forecast for September. 

The data for August, released by the commerce department on Tuesday, shows cumulative exports in the first five months of the financial year fell 26.65 per cent compared to the same period in the previous year.

Imports fell by 26.04 per cent to $29.47 billion, after July's 28.4 per cent fall. The rate of contraction of imports has continued to reduce over the past five months. After witnessing a rare trade surplus of $800 million in June, the trade deficit climbed to $6.77 billion, a four-month high. However, the latest rise was attributed by experts to a 171 per cent surge in gold imports, reflecting pent-up demand as well as elevated prices, with expectations of further imports in the run-up to the festive season.

Exports continue to remain hamstrung by the deep economic slowdown induced by the Covid-19 pandemic across India's key markets of Europe, the US, and the Gulf region. In August, 15 of the 30 major product groups showed growth, down from 16 in the previous month. Only drug exports continued to capitalise on the Covid-19 pandemic, and saw substantial growth of 17.3 per cent, slightly lower than July’s 19.5 per cent. However, all other major export categories remained deep in the red. 


Petroleum products, the biggest revenue earner, registered a 40 per cent decline, albeit better than the 51.5 per cent fall seen in July. After stabilising in recent months, industrial products such as engineering goods again slipped into de-growth. Shipments of exports of engineering goods fell 8 per cent to $19.7 billion, following similar growth in the previous month. The sector accounts for nearly one-fourth of foreign exchange earned through exports. 

“The continuous fall in exports in August clearly shows the grave challenges of the global marketplace, which is bearing the huge impact of a never-seen-before health crisis, an escalating trade war between the world's two largest economies, and rising geopolitical risks. It is imperative for the government to extend its helping hand,” said Mahesh Desai, chairman of the Engineering Export Promotion Council.

Consumer products such as textiles, gems and jewellery, and electronic goods, among other items, continued to show contraction, at almost similar levels. Gems and jewellery exports fell by 43.2 per cent, even as the pace of contraction is on the decline from 50 per cent in June. Apparel exports saw a 14 per cent drop in August, down from a 35 per cent fall in June.

“Despite the pandemic, Indian exporters have started receiving a lot of enquiries and orders from across the globe, helping many sectors to show improved export performance, which is likely to get better in the next few months. However, exporters, particularly from the MSME sector, are facing huge liquidity challenges due to the stoppage of MEIS benefits of over Rs 10,000 crore from April 1, and IGST refund now. Subsequently, many exporters have expressed their inability to honour orders," said Sharad Kumar Saraf, president of the Federation of Indian Export Organisations (FIEO).

Aditi Nayar, principal economist, ICRA, said, “The recovery in merchandise imports lost steam in August, with only a mild narrowing in the pace of contraction to 26 per cent from 28.4 per cent in July, which benefited from the spike in gold imports. Moreover, the de-growth in both headline and non-oil merchandise exports worsened in August, a relapse of the healthy recovery recorded since May, serving as a reminder of the likely hiccups ahead before the economy normalises from the impact of the ongoing crisis." 

ICRA expects a substantial current account surplus of $7-10 billion in Q2 FY21. This is corroborated by added figures from the services sector as well. According to the Reserve Bank of India's figures, services exports in July stood at $17.03 billion, witnessing a 10 per cent fall, whereas imports stood at $10.05 billion, a fall of nearly 22 per cent. In August, major imports such as crude oil, engineering goods, coal and machinery continued to drop. Oil imports reduced by 41.6, up from 32 per cent. Non-oil, non-gold imports declined by 29.6 per cent in the latest month.





Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel